What You Need to Know
- Researchers asked 500 financial professionals if they advise clients on credit issues and, if so, what types of advice they provide.
- Despite the rise in advisory service, professional credit advice has been informal at best for most Americans.
- Many advisors were prohibited or unsure of their ability to make housing credit recommendations.
When we think of financial planners providing “credit advice,” it brings us back in time to the image of a life insurance agent — or even the property and casualty agent — being asked to caution the clients’ children on the dangers of debt and credit cards.
Despite the rise in advisory service, professional credit advice has been informal at best for most Americans. Many retirees now carry debt, which has resulted in a significant increase in liabilities that put them at risk.
For example, the Urban Institute reports that some 9.18 million homeowners age 65 and older have mortgage debt, up nearly 60% from 5.82 million a decade ago. The Employee Benefit Research Institute reports that the percentage of families with heads age 75 or older with monthly debt obligations greater than 40% of their income increased by more than 23% from 2007 to 2016.
Considering how dangerous mandatory debt service can be to retirement accounts over a lengthy retirement subject to market volatility, where do credit conversations fit in the world of life insurance agents, registered representatives and investment advisor representatives?
Financial services professionals are trained, regulated on and compensated for placing products and managing assets. Advising clients about credit may not fit into the typical planning process. Do broker-dealers, insurance companies and investment advisors even encourage conversations about credit? Or have financial services ignored this pressing need?
Certifications may provide some insight. The Certified Financial Planner Board of Standards requires candidates to study principles of debt, cash flow management and retirement income and distribution strategies as part of the journey to CFP certification.
The Accredited Financial Counselor designation (AFC) dives deeper into consumer debt management, personal finance and spending. The American College of Financial Services’ ChFC designation, and other mainstream designations, also require an understanding of credit, mortgages, refinancing and cash flow strategies. With CFP, AFC, ChFC and other designations providing education on debt, tens of thousands of advisors are theoretically equipped to offer credit advice.
But do they? And if they are advising clients on credit decisions, are these conversations blessed or encouraged by compliance? Or is our profession looking the other way while attending to more lucrative areas?